Other information and appropriation of profit

Revenue recognition of Swedish tenant-owned housing projects

Together with several other major housing developers Peab has received questions from Nasdaq Stockholm AB (Nasdaq) during the year regarding the application of IFRS 15 Revenue from contracts with customers as well as whether the tenant-owned housing association or the final homebuyers are, in terms ofaccounting, Peab’s customers according to IFRS 15. Peab has answered Nasdaq’s questions and we have had a dialogue and motivated why we consider thetenant-owned housing association to be Peab’s customer. This conclusion is shared by our accountants. For this reasonPeab applies revenue over time accounting to Swedish tenant-owned housing projects.

The reconciliation between Nasdaq and ESME (The European Securities Markets Expert Group) came to the conclusion that, in this case, the accounting review should be focused on the application of IFRS10 Consolidated financial statements. Regarding the matter of whether or not a company has controlling interest over a tenant-owned housing association,and therebyought to consolidate the association, there is, taking into consideration all relevant facts and circumstances, room for companies to arrive at different conclusions. There are variations between different companies’ operational, business and contractual structures and several factors can be significant,such as board composition, terms for land procurement, contract work, financing and divestment as well as the tenure of the condominiums, in deciding whether or not controlling interestexists. With this in mind Nasdaq believes that a presumption for consolidation (in accordance with IFRS 10) exists if the construction company (or representatives for it) make up a majority of the members of a tenant-owned housing association or have the right to appoint more thanhalf of the members in its board. However, a judgement must be made in each individual case and specific circumstances in a company’s business model,such as the statutes in a tenant-owned housing association and contract terms, can render different conclusionsregarding whether or not tenant-ownedhousing associations ought to be consolidated or not.

After a review of the factors above our conclusion is that Peabcan not be considered to have controlling interest over tenant-owned housing associations according to IFRS 10 Consolidated financial statements. Fore more information see note 3.

In the beginning of December 2018 Nasdaq sent a letter to Peab with the information that Nasdaq had decided to criticize Peab for a lack of clarity in the Annual Report for 2017 concerningthe grounds for Peab’s assessment that controlling interest does not exist when revenue over time is applied to tenant-ownedhousingassociations. Nasdaq requires that clearer information is presented in the Annual Report for 2018. Nasdaq explainedthat any changes concerning consolidation of tenant-owned housing projects should be through acorrection with retroactive application in the Annual Report for 2018. The letteralso stated that for Nasdaq the matter is now concludedand that Finansinspektionen has been notified. Finansinspektionen has announced that they intendto continue to review the question of tenant-owned housing project accounting in the Annual Report for 2017.

Peab’s sustainability work

As a community builder and a major employer Peab’s operations have an impact on society and those living and working in it, both long and short term. Therefore we put great effort into ensuring that what we plan and carry out is ethical and sustainable throughout an entire life cycle. Our aim is to run our company sustainability and responsibly encompassing Social (employees and society), Environmental and Economic aspects. Peab’s strategic sustainability work is primarily focused on preventing risks, systematic quality work and, in an inventive and responsible manner, enabling sustainable development. In accordance with the Annual Reports Act chapter 6 paragraph 11 Peab has chosen to present the statutory sustainable report outside of the Board of Directors’ Report. The required parts of a sustainable report can be found under sections Goals and strategies, Our take on sustainable business,Social, Environment, Economic, Risks and risk management and Corporate governance report.

Operations required to have permits or submit reports

Operations required to have permits and submit reports according to the environmental code are found in the Swedish sub-groups Swerock, Skandinaviska Byggelement, Peab Asfalt, Peab Anläggning and Peab Bostad. In Finland permit operations are run according to the Environmental Protection Act. Operations required to have permits in Sweden are land remediation, water operations, gravel and rock quarries, transportation of waste and hazardous waste and asphalt plants. These operations primarily affect the environment through the extraction of finite resources, future land use and emissions. Operations required to have permits in Finland are mainly concrete manufacturing and ballast operations. Renewal and supplementation of permits is continuous.

Swerock’s concrete factories and Skandinaviska Byggelement’s concrete product factories as well as Peab Asphalt’s permanent and mobile asphalt plants are operations that must submit reports.

Research and development

The purpose of Peab’s research and development is to provide society, our customers and ourselves with added value and sustainable development by using new discoveries to improve or to develop new products, services and production processes. Research and development is run close to operations in the different business areas in order for it to be steered by current needs. Therefore Peab does not have a central unit for research and development. Peab collaborates with universities, colleges and trade organizations and is an active participant in many trade organization projects.

Some examples of trade organization projects in business area Construction in 2018 were “Regulations for function procurement of turnkey contracts”, “Efficient framework construction in concrete” and “Digitalized Production Processes”. Some in business area Civil Engineering: “Control of land stabilization with resistivity”, “Packing embankments for high velocity railroads with varying foundation conditions” and “Productivity in the deep foundation acoustic method”. Examples in business area Industry: “Sustainable community building with resistant concrete”, “Radon gas reduction with alternative binders and blends in concrete” and “Measures regarding diffuse particle emissions”.

IMPORTANT EVENTS DURING THE YEAR

Camila Buzaglo was appointed Chief Communications Officer at Peab and a member of executive management. Camila Buzaglo left a position as CCO at IP-Only. She has previously worked with communication and public relations at Telia and in the Government and Parliament Offices as press secretary. Camila Buzaglo assumed her role as CCO on 1 November 2018.

Lotta Brändström became the Business Area Civil Engineering Manager at Peab on 1 January 2019. Lotta Brändström held the position of Assistant Business Area Civil Engineering Manager. She has previously been the CEO of Göteborg Energi and held various positions within the Swedish Transport Administration and the Swedish Railway Authority. Lotta Brändström took the place of Karl-Gunnar Karlsson who was the combined Business Areas Civil Engineering and Industry Manager for several years. Karl-Gunnar Karlsson will continue in his role as Business Area Industry Manager. Lotta Brändström also became a member of executive management which now consists of:

THE PEAB SHARE

At the end of 2018 Peab’s share capital amounted to SEK 1,583,866,056 divided among a total of 296,049,730 shares, resulting in a nominal value of SEK 5.35 per share. Of the shares, 34,319,957 are A shares with ten votes per share, and 261,729,773 are B shares with one vote per share. All shares carry equal rights to participation in the company’s assets, profits and dividends. There are no restrictions in the articles of association concerning transferring shares or the disposal of votes at the AGM. On 31 December 2018 there were approximately 37,000 shareholders in Peab. At the beginning of 2017 Mats Paulsson with companies held 28.6 percent of the votes, Fredrik Paulsson with family and companies held 14.5 percent of the votes and Anita Paulsson with family and companies held 14.5 percent of the votes. As part of the generation shift, in the spring of 2017 the Paulsson families merged the majority of their indirect holdings into a holding company, Ekhaga Utveckling AB, which is controlled by Mats Paulsson’s son Fredrik Paulsson. Ekhaga Utveckling AB has 48.2 percent of the votes. At the end of 2018 the collective ownership connected to the Paulsson families amounted to a total of 25.5 percent of the capital and 57.6 percent of the votes. The company has no knowledge of any agreements between shareholders that can result in restriction of the right to transfer shares.

Peab’s AGM decided on 7 May 2018 to authorize the Board to decide, during the period up to the next AGM, on new issues of B shares with rights for current shareholders to participate in the issue or without preferential rights for current shareholders to participate in the issue in connection with acquisitions. The authorization may be used on one or more occasions and correspond to, at the most, a total of 10 percent of the registered share capital at the time of the authorization. During the year the Board has not decided to issue any new shares.

In 2007 Peab established a profit-sharing foundation. According to the foundation’s placement policy its capital should be placed primarily in Peab shares. On 31 December 2018 the foundation owned 10,408,000 B shares in Peab, corresponding to 3,5 percent of the the total number of shares.

HOLDINGS OF OWN SHARES

At the beginning of 2018 Peab’s own B shareholding was 1,086,984 which corresponds to 0.4 percent of the total number of shares. Peab’s AGM on 7 May 2018 resolved to authorize the Board to, during the period until the next AGM, acquire shares so that the company would have at most 10 percent of the total shares in Peab. No own shares were purchased nor divested during 2018 which means that Peab’s own shareholding was 1,086,984 B shares at the end of 2018. For more information see note 28.

CORPORATE GOVERNANCE

For a detailed description of the work of the Board of Directors, corporate governance and systems for internal control see here, Corporate governance report.

Renumeration for senior officers

The Board will submit unchanged remuneration principles to the AGM on 9 May 2019.

For more information about adopted guidelines regarding salaries and other remuneration to the CEO and other members of executive management, see note 10.

ANTICIPATED FUTURE DEVELOPMENT

In Sweden new production of homes is expected to decrease in 2019 and 2020. The forecast for other building construction is difficult to make but growth in employment and the population as well as an aging population are forces driving the demand for premises. On top of that the need to modernize in particular schools and healthcare facilities promotes renovation investments. All in all building construction investments are expected to contract in 2019 and then level out in 2020. Civil engineering investments look like they might increase during the coming years and the new government will most likely strive to achieve the ambitions laid out in the latest infrastructure proposition.

Housing construction investments in Norway declined in 2018 and are expected to level out in 2019 before they turn up again in 2020. Other building construction is expected to have the opposite development, partly as a reaction to the increase in 2018 and partly because of interest hikes and a global recession. Civil engineering investments, however, are expected to grow at a good rate in 2019.

In Finland housing investments increased in 2018 and are expected to grow in 2019 as well, which is largely due to higher income in households and a pent up need for investments. Investments are then expected to level off in 2020. Weaker growth in the economy is reflected in the forecasts for other building construction which is basically showing no growth in the period 2018- 2020. The forecasts for civil engineering investments signal weak growth for the period 2019 on the whole.

PARENT COMPANY

The parent company’s business consists of executive management and Group functions. Net sales in 2018 were SEK 299 million (262) and consisted primarily of internal Group services. Operating profit for the year was SEK -171 million (-150). Profit after net financial items amounted to SEK 1,128 million (-100). Net financial items included dividends from subsidiaries for SEK 1,509 million (-). In 2017 net financial items included a capital gain of SEK 163 million from sale of shares in Lemminkäinen Oyj. During the year the parent company received net Group contributions of SEK 2,698 million (3,419). Profit for the year amounted to SEK 2,809 million (2,017).

Proposed appropriation of profit

The following amounts in SEK are at the disposal of the Annual General Meeting;

Till årsstämmans förfogande finns följande belopp i kronor;

Share premium reserve

Överkursfond

2,308,208,948

Profit brought forward

Balanserat resultat

2,010,948,188

Profit for the year

Årets resultat

2,808,819,450

Total

Summa

7,127,976,586

The Board of Directors propose the following appropriation of disposable profit and non-restricted reserves;

Peab AB is a public company, Company ID 556061-4330. Domicile Båstad, Sweden.

All values are expressed in Swedish krona. Krona is abbreviated to SEK, thousands of krona to TSEK and millions of krona to MSEK. Numbers presented in parentheses refer to 2016 unless otherwise specified.

Data regarding markets and the competition are Peab’s own assessments, unless another source is specified. These assessments are based on the best and latest available facts from, among others, previously published material.

- Peab takes work environment matters very seriously and works systematically to create safe workplaces. The kind of safety equipment used varies depending on national regulations and the type of operations. A risk analysis is always performed for each workplace before any exception is made.

- The people pictured in this publication are wearing personal safety equipment required by regulations valid for the operations and country they are in.